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Posted by: Bryan Pick on Monday, January 26, 2009

I promised earlier today to do a post on Paul Krugman's latest article defending the stimulus, but I see Jon already covered most of it at The Next Right.

I would add a few more points:
The true cost per job of the Obama plan will probably be closer to \$100,000 than \$275,000 — and the net cost will be as little as \$60,000 once you take into account the fact that a stronger economy means higher tax receipts.
First, this may be a merely semantic point, but there's a lot of daylight between \$100,000 and \$275,000 for the figure to be "closer to". How much closer to \$100k?

And the second figure sounds highly optimistic. Are businesses and employees really going to pay \$40,000 in higher taxes back for the "closer to \$100,000" paid for each job? The federal government collects roughly 18% of GDP in taxes. \$40,000/.18=\$222,222. So if Krugman is implying a \$100,000 true cost per job, he would have to assume a 2.22 multiplier for government spending, which (again) sounds pretty optimistic... or he's assuming a much higher tax rate. (Is there some problem with my arithmetic there?)

Among the other assumptions that would have to hold for his figure to be correct, his figure will only apply to those who would have been unemployed if not for the the government job. I assume that assumption contributes a great deal to Krugman's use of the words, "as little as".

Next point... Jon already responded to this point, but I have something else to add:
Next, write off anyone who asserts that it’s always better to cut taxes than to increase government spending because taxpayers, not bureaucrats, are the best judges of how to spend their money.

Here’s how to think about this argument: it implies that we should shut down the air traffic control system. After all, that system is paid for with fees on air tickets — and surely it would be better to let the flying public keep its money rather than hand it over to government bureaucrats. If that would mean lots of midair collisions, hey, stuff happens.
But, other than anarcho-capitalists, who says there is no worthwhile government spending? The stimulus debate is not even remotely about whether we should fund the air traffic control system, or anything else as vitally important - there is already a budget process in place for those projects - but about whether we should fund/speed up funding for thousands of wish-list projects and programs around the country. It should give you an idea of how thoughtful Krugman's objections are that he has to rely on a false dilemma (if some government spending is valuable, then complaints about completely different government spending must be spurious) to support his argument.
Let's take Krugman's argument to its logical conclusion: why not have the government spend all our money? After all, if leaving the next \$355 billion in the taxpayer's hands is tantamount to shutting down the most vital extant functions of government, surely it's true of the next \$355 billion after that, and the next \$355 billion, ad nauseam.

And does Krugman really think that airports and airlines would not run an air traffic control system if the government stopped paying for it, and just shrug when mid-air collisions happened? You don't have to be an anarcho-capitalist to call that into question—you just have to trust that airline companies and airports wouldn't want planes colliding and falling out of the sky. It's kinda bad for business.

But Jon's point is the primary objection here. To my ear, it sounds like this:
KRUGMAN: "I want to buy a long ton of butter."
RIGHT: "That sounds like an irresponsible expenditure."
KRUGMAN: "I suppose you want me to starve to death!"
Meanwhile, it’s clear that when it comes to economic stimulus, public spending provides much more bang for the buck than tax cuts — and therefore costs less per job created (see the previous fraudulent argument) — because a large fraction of any tax cut will simply be saved.
As I argued in my previous post, what if people do put a lot of the money into the bank? Isn't the administration trying to recapitalize the banks? Isn't the government trying to get them lending again?

I'll leave the question of what really gets the most "bang for the buck" to others.

Lastly, here's something we've seen a lot lately:
The most encouraging thing I’ve heard lately is Mr. Obama’s reported response to Republican objections to a spending-oriented economic plan: “I won.” Indeed he did — and he should disregard the huffing and puffing of those who lost.
Boy, the Left's attitude on listening to the minority sure has changed since November, hasn't it?

I'm sure Krugman (and, say, Pelosi) won't mind if Republicans take his advice next time they're in power.